Insurers often seek to avoid liability for bad faith by asserting the “Genuine Dispute Doctrine.” Under the genuine dispute rule, an insurer’s coverage or claim decision may not be in bad faith when it mistakenly withholds policy benefits, if the mistake is reasonable and is based on a legitimate dispute as to the insurer’s liability.1

However, the genuine dispute doctrine is inapplicable when the coverage decision is reached as a result of a biased or inadequate investigation.2 Under the genuine dispute doctrine, “[a] genuine dispute exists only where the insurer’s position is maintained in good faith and on reasonable grounds.”3

Further, the reasonableness of the insurer’s actions and decision to deny benefits is evaluated “as of the time they were made rather than with the benefit of hindsight.”4 Therefore, an insurer seeking to justify its conduct on the basis of a genuine dispute must establish that it reasonably relied on the disputed issue at the time it made its decision to deny coverage, and that it informed its insured of the basis of the denial.5

The above legal principles provide important points:

  • Often insurers’ litigation attorneys will raise defenses and arguments not asserted during the claim. These new arguments cannot be used to support a genuine dispute defense.
  • When an insurer fails to investigate a claim, it cannot, by definition, reasonably and in good faith deny coverage. This distinction is also important. When insurers’ claims decisions are based on defective investigations, the coverage decisions reached are often flawed. When the insurer later seeks to avoid bad faith liability by asserting the genuine dispute rule, policyholder advocates should make sure trial judges are aware that the defense is not available if the bad faith claim is based upon the factual predicate of an insufficient investigation.


1 Wilson v. 21st Century Ins. Co., 42 Cal. 4th 713, 723-24 & n.7 (2007).
2 See Brehm v. 21st Century Ins. Co., 166 Cal.App.4th 1225 (2008); see also Egan v. Mutual of Omaha Ins. Co., 24 Cal. 3d 809, 819 (1979) (“an insurer cannot reasonably and in good faith deny payments to its insured without thoroughly investigating the foundation for its denial”).
3 Wilson, 42 Cal. 4th at 725.
4 Century Surety Co. v. Polisso, 139 Cal. App. 4th 922, 949 (2006).
5 Id. at 953 (holding that because insurer did not cite particular issue “as a ground for denial of coverage when the claim was tendered, it was never the subject of a genuine dispute between the parties”).